If it was widely expected (the FOMC decision), why did markets fall significantly on the news?

Maybe the markets were expecting some consideration (concern) regarding emerging markets turmoil. But that was solemnly ignored.

The Fed’s step back from bond-buying has stoked worries about the stability of emerging markets in recent sessions. Investors say the U.S. central bank’s aggressive program, aimed at stimulating the U.S. economy, pushed investors to send cash to developing economies—taking on more risk in search of greater returns.

Worries about the stability of emerging markets flared again Wednesday after interest-rate increases from central banks in Turkey and South Africa didn’t stem a selloff in emerging-market currencies, stocks and debt.

11 thoughts on “If it was widely expected (the FOMC decision), why did markets fall significantly on the news?

  1. All that’s fair enough, but the PBOC is far far far far more responsible for the carnage in emerging markets.

    The Federal Reserve is way way way way better than the PBOC.

  2. The wording of the description of the situation in the quote seems strange. I am, at the very least, skeptical that anyone in the financial press knows anything at all about the veracity of their claims other than the superficially plausible – and even at superficially plausible, I doubt much care goes into the story at all.

  3. China should feel very aggrieved with the US. China led a great BRIC counter-cyclical monetary easing while the US and others fiddled about. Now, when the US “recovery” has barely begun to build up some steam, the FOMC sets out on monetary tightening seemingly regardless of economic conditions. Just look at the rock solid market consensus for tapering, $10bn lower each FOMC, in iron steps until down to zero. I would feel betrayed if I was a BRIC by the US. And now markets are getting scared too.

    The over-compensation we all detected at the official start of tapering is being withdrawn. The blind helmsman is back.

  4. Yeah, you know with inflation rising far above targets in the USA, the Fed was handcuffed, and just had to start cutting back on QE…you know with factory capacity bursting at the seams and no more slack in the labor force…plus, there were signs of bubbles everywhere, what with the S&P’s 500 p-e’s deeply average and gold sinking like a stone…um. Did I mention we could see higher inflation if the Fed stuck with QE?

  5. Apologies for the length of the précis, but this is just now very hard for the market to navigate. And is, frankly, a mess. And the tightening bias is set in stone, pretty much or the Fed’s “credibility” could be on the line. Oh dear, never mind the real world.

    The Wall Street Journal’s Fed “insider” Jon Hilsenrath published an article titled “Fed Sets Bar on Tapering.” His five key takeaways: – i) Validation of the Tapering Plan: Bernanke suggested back in December that the Fed would continue reducing its monthly bond-buying in $10bln increments at upcoming meetings, but he didn’t state it directly. Today’s decision to pull back to $65bln per month is a validation of the Fed’s strategy; ii) Measuring the Fed’s bar for altering course: The Fed conveyed information about its threshold for changing course on the program. By deciding to proceed with a $10bln reduction, the Fed has demonstrated its threshold for inaction. We now know that it will take something worse than a weak jobs report and declining currencies in places like Turkey, Russia and South Africa to convince the FOMC that they should keep the bond-buying program going longer than planned; iii) The vote was unanimous: Today was the first unanimous vote on a policy decision since June 2011; iv) Five degrees of communication: The Fed has five different indicators in its policy statement of when it might start raising interest rates: 1) After the jobless rate gets below 6.5%; 2) If inflation looks like it might breach 2.5%; 3) Not until a “considerable time” after the bond buying program is over; 4) “Well past” the time when the jobless rate reaches the 6.5% threshold; 5) Depending on “other information” about the labor market and inflation. Officials didn’t change any of that “forward guidance” about rates; and v) A mixed assessment of the economy: “Labor market indicators were mixed but on balance showed further improvement,” the Fed said in its assessment of how the economy performed since officials last met in December. Put another way, officials aren’t too worried about a slowdown in payroll growth in December, but if it persists their view might change.

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